Care Funding and Pension Capital Disregard Question

swebb99

I'm looking after my mothers finances, she is in a care home and self funding. She is over state pension age and so far has not withdrawn any money from her SIPP.

I was playing around with various AI chat engines trying to figure out the most tax efficient ways of paying for her care when one of the systems mentioned Pension Capital Disregard and the Care Act 2014. It said that because my mother was above state pension age and hadn't as yet touched her SIPP pension that we should leave it untouched but pay for care using her other savings until the £23250 threshold was reached when the the local authority would carry out a care home financial assessment.

It said that a financial assessment would look at my mothers capital and income (state pension, savings….). It said the SIPP is an income product they can only assess it on the basis of income and not capital (how much is in it). As she is drawing no income she has effectively reached the £23250 threshold. However it went on to say that they would not completely ignore the SIPP as they would say that a notional income could be taken from the SIPP based on its capital value. This would be the value that we would expect if the SIPP was used to purchase an annuity and they would use calculations for this. They would then calculate the income and capital which would be £23250 + annuity value of SIPP and would then in theory pay the funding gap to pay for the care home costs.

This obviously leaves money in the SIPP and instead of having to take out the full cost of any funding shortfall every year we would only have to take out an expected annuity value and this would be a fair bit less.

I queried about deprivation of assets but it implied that this is not a deprivation and provided the following details:

The Council (like all councils) follows the Care and Support Statutory Guidance.

• The Rule (Annex B, Paragraph 44): It explicitly states that a pension pot should be disregarded as capital for anyone who has reached State Pension age.
• The "Deprivation" Test: To prove deprivation, the council must prove she moved money with the main intention of avoiding care fees.
  • Your mother already has this SIPP. She didn't move money into it yesterday to hide it.
  • Choosing to follow the standard "drawdown" or "annuity" path for a pension (which is what the Notional Income rule assumes) is considered normal financial management.
  • Spending her cash and ISAs on her care is also "legitimate spending." You aren't giving the money away to family; you are using it to pay the bills and care.

The council cannot claim deprivation simply because you are choosing to spend your "taxable and visible" assets before your "tax-sheltered and disregarded" ones.

It also said that when discussing this with the council we should say :

"My mother’s SIPP is being treated as a source of income, not capital, as per Paragraph 44 of Annex B of the Care and Support Statutory Guidance. We are happy for you to assess her notional income from the pot, but the capital remains a disregarded asset."

I also found some details in section 7.2.2 in this AGE UK factsheet and also when discussing leaving a pension pot untouched in this article and AJ BELL discuss it and finally item 61 in Annex B in the governments care and support guidance

Has anyone any experience of this?

Marcon

You're more likely to get informed answers on the Benefits board, so I've asked for this to be moved.

swebb99

Thanks @marcon I hadn't spotted the Benefits Board 😫

NedS

I agree with what you (and AI) has written.

Generally, the purpose of a pension is to provide an income in retirement. For the purposes of means-tested benefits, it is normal to assume you would take an income from a pension pot once you reach State Pension age, and if you do not then they will assume notional income as you state.

The capital within the pension falls to be disregarded and should not be drawn down to near zero (£23,250) to directly pay for care costs. Rather it should be used to provide an income, either by way of drawdown or through the purchase of an annuity. The income will be taken into consideration when deciding if a person can afford to make a contribution from surplus income towards their care costs.

If mother is expected to make a contribution towards her care from income, it is up to you to determine whether you consider it more efficient to put the SIPP into drawdown or to make this from notional income (maybe from her remaining £23250 of capital).

NedS

Further, where capital between the lower threshold of £14,250 and upper threshold of £23,250 exists, tariff income of £1/week for every £250 of savings between the lower and upper thresholds will be assumed. This equates to approx £52/year of tariff income per £250 of savings (20.8%). I would thus consider it favourable to deplete capital down to the lower threshold first to avoid tariff income (rather than withdrawing from the SIPP), assuming you are unable to achieve a 20.8% return on that capital.

Grumpy_chap

Pension is to provide income not capital.

If pension is eligible to be drawn down, individual will be assumed to do so at a sustainable rate to support rest of life.

I am not sure whether financial assessment will consider the value that could have been sustainability drawn down but delayed. Possibly not as it would result in double counting.

The amount that can be sustainability drawn from a pension is higher at age 85 than age 65.

NedS

https://forums.moneysavingexpert.com/discussion/comment/81958200#Comment_81958200

If not already in drawdown, the LA financial assessment will simply use the value of an annuity that could be purchased for notional income. Obviously this will be significantly higher the older the person is at the time of the assessment, and the pot will presumably be higher than it otherwise would have been had they been drawing down upon it.

swebb99

https://forums.moneysavingexpert.com/discussion/comment/81958138#Comment_81958138

Thanks for the informed response :)

As I previously said I was initially looking into ways of paying as little tax as possible so that my mothers funds would last as long as possible. One concern was that I was informed that once the funds ran out the LA were unlikely to make up all of the shortfall and in order for my mother to be kept in the same home then it would fall on me to make any shortfall, this could run in to several hundreds of pounds per week. As someone who has retired early this would put me in a really difficult position financially.

When the AI mentioned pension capital disregard this struck me as a way of reducing her funds more slowly than I had initially considered was possible, if it was legal to do so. We weren't planning on initially taking any money out of the SIPP anyway because it has been growing fairly well so i was going to leave it for a year or so.

I suppose what I need to look into now is how much the LA would expect an annuity to pay on my mothers SIPP pot for the notional income. She is 84 with Alzheimer's so it will be certainly higher than the average pensioner. Are there any calculators available modelled on the calculations an LA is likely to use ?

Thanks for the responses, greatly appreciated 👍️

swebb99

One other point the AI system raised which I thought was interesting was that the LA are likely to ask use to make up the full shortfall using the SIPP however as stated we should mention it is an income product and that we would accept a notional income from in and make it clear there are two options :

1. They don't accept this (legally they should) and we then refuse to use SIPP income and this leave the LA having to offer their normal care rate, say £750pw and then I have to make any shortfall.
2. Accept, the annuity from the SIPP at £XXXpw and the care rate that then has to be paid is almost certainly less that £750 so less than option 1 for the LA and I wouldn't then need to make up any shortfall.

Obviously option 2 is better for the LA and myself and even though the SIPP is reducing it is for my mothers benefit and she wouldn't be using it for anything else anyway.

NedS

My understanding is as follows:

• Mother self funds until capital reaches £23,250. Around 6 weeks before she hits this threshold, you should write to the LA requesting an urgent financial review stating that they will be liable to pick up any shortfall in your mother's care costs together with the estimated date you expect to reach the threshold
• Before the threshold is reached, the LA should undertake a financial review to determine how much mother can contribute towards their care costs out of their income. Capital is effectively excluded at this point, but there will be tariff income considered for each £250 of capital between the lower threshold (14,250) and upper threshold (£23,250), so if she has £23,000 of capital remaining, they will assume an extra £35 of tariff income per week.
• Once you have a weekly income figure, there are set allowances for how much a person may retain from their income for personal costs. This is known as the Personal Expenses Allowance (PEA) and is £31.80 in England. See: https://www.carehome.co.uk/advice/personal-expenses-allowance-pea-in-care-homes

With respect to the SIPP, I suspect as long as an income is being taken, you may get away with it. The LA financial assessor will ask for evidence of their income (State Pension, private pensions, attendance allowance and any other income). When you declare the income from the 'private pension' (SIPP) they will unlikely ask how much is in the pot and work out if the income matches current annuity rates. They may, depending how on the ball the assessor is, but you may get away with just declaring an income. If there is no income, then you would need to declare that and they will definitely use current annuity rates to determine the notional income.

Once the weekly income is established, and any allowances and expenses are deducted, what is left is deemed excess income and is the amount mother will be required to contribute towards their care.

The shortfall must be picked up by the LA. If the shortfall is more than the LA care rate (£859/week here), then they could theoretically move mother to a cheaper care home. I don't think they can expect mother to pay the shortfall, as the means test has determined she does not have the means to do this.

swebb99

Sorry for the slow reply @NedS its been a busy few days! Thanks for the information :) I looked a bit more in to it and AI gave me some information that was both concerning and baffling to me but I guess nothing should surprise me now regarding care funding.

Basically it said that if for instance it was determined that yes my mother had reached the funding limit and yes they accept what is currently being drawn out of the pension (no questions asked) or they apply a Notional Annuity calculation then they would take either of those figures and not calculate it like below which I had assumed :

Care Home Rate (£1250) = State Pension + Private Pension Income + LA Funding need to make up shortfall + Possible Family (me) payment to make up shortfall left.

What they actually do is :

Care Home Rate (£1250) = State Pension + (LA Full Funding (£780) - Private Pension Income) + Certain Family (me) payment to make up shortfall (£470).

So basically they use the Private income to reduce the amount they pay.

So it would look like I will have to make up any shortfall or my mother goes in to a cheaper home.

It did mention I could argue that if she goes in to another home that they would definitely be paying £780 and keeping her in the current home they would be paying no more and raise various points in the 2014 care act such as moving her would affect her health and almost certainly cost the state more in the long run do to issues around that.

The whole care funding calculation, LA negotiations around what they will pay and when they move someone all seems a very murky complicated setup to me !